Fair value assessment in a commercial line cannot lean on claims ratios, because a well-underwritten surety book pays very few claims. A zero-claims year is evidence of good selection, not of poor value.
What it can lean on is whether the bond did the job it was bought for: whether the wording was accepted by the beneficiary first time, whether the facility limit matched the contract pipeline, and whether the bond was released when it should have been rather than left running and charged for.
That last point is where we find most of the value leakage in this market. Bonds that should have been discharged at practical completion sit in force for years because nobody asked for the release. We now write to facility holders annually with a schedule of live bonds and their expiry basis.
Written by the underwriting team at FDI Insurance d.a.c., Dublin. This piece is general information, not advice on any particular transaction — and it is not an offer of insurance.
